Monday, May 16, 2011

The SBA and macerate

macerate
(MAS-uh-rayt)
1. To soften by soaking or steeping in a liquid.
2. To separate into parts by soaking.
3. To weaken or to become thin; to emaciate.
From Latin macerare (to make soft, weaken).
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TIP OF THE WEEK

Community banking has been macerated. Economic and market shifts have also macerated commercial real estate. The boom of the last decade is gone.

Un-macerated are SBA loans.

The May issue of the CB Journal takes a look at community banking, real estate, and how SBA loans have changed in a big way.

For a copy of this month’s issue, go here: http://cb-resource.com/CBJournal/04CBJournal_May11.pdf
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The debenture rate is 3.79% but note rate is 3.85% and effective yield is only 5.639%.
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AHEAD OF THE YIELD CURVE

The government had to borrow another $72 billion last week to keep paying for all the wonderful things they are doing to us.

Included in all that borrowing was $16 billion in 30 year bonds that sold at a yield of 4.35 percent. The yield touched 4.25 percent on May 5, the lowest level since December 7, after rising to 4.79 percent on Feb. 9. Last month’s auction drew a yield of 4.531 percent.

This dip in the yield curve coincides with a dip in the Ceridian-UCLA Pulse of Commerce Index. This index is based on real-time diesel fuel consumption data for over the road trucking and serves as an indicator of the state and possible future direction of the U.S. economy. By tracking the volume and location of fuel being purchased, the index closely monitors the over the road movement of raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers. It fell 0.5 percent in April.

The Ceridian-UCLA Pulse of Commerce Index tends to lead industrial production which in turn dictates capacity utilization rates.

The capacity utilization rate, which measures how much plants and factories are being used, has been steadily climbing since reaching a historic low in August of 2009 of only 68.2%.

Keep your eye on Tuesday's release from the Federal Reserve on Industrial Production and Capacity Utilization.

Last month, the rate of capacity utilization for total industry rose 0.5 percentage point to 77.4 percent, a rate 3.0 percentage points below its average from 1972 to 2010. In December it was at 76.3 percent.

One of the Federal Reserve’s favorite gauges of the economy is the capacity utilization rate. The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often lead to inflationary pressures that would drive prices even higher. Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

Capacity utilization at 77.4% is still far below normal - and well below the pre-recession levels of 81.2% in November 2007.

That means we still have a long way to go before interest rates really start to go up.
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OFF BASE

In case you haven’t heard, the world is supposed to end this Saturday.

May 21st is being heralded as Judgment Day--the time when the earth will be destroyed due to mankind's sins. The guy making this prediction had previously said that the world would end on September 6, 1994. The world did not end on that day evidently due to a mathematical error.

May 21st is also the birthday of Monty Stratton. He would have been 99 years old. Stratton pitched for the Chicago White Sox in late 1930’s and was recognized as one of the top pitchers in the American League. However, a freak hunting accident caused Monty’s right leg to be amputated. Throughout the early- and mid-1940s, Stratton attempted to come back from his injury, pitching in the minors while hopping around on a crude wooden leg. His return to baseball encountered difficulties because other teams persistently bunted balls out of his reach, but Stratton finally was able to make a successful comeback, winning 18 games with the Class-C Sherman Twins of the East Texas League. His comeback attempt was the subject of the 1949 film The Stratton Story which starred Jimmy Stewart.

Pitching on two perfectly good legs still is Arizona Diamondback Armando Galarraga. Armando gave up another home run last Wednesday against the Giants and now has allowed 12 home runs over only 37 2/3 innings. At this rate Armando has an excellent shot of setting a new record for home runs allowed by a pitcher in a single season. He pitches again tonight against the Padres.